18-22 and 20-38 Cost Management

Brief

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Pr. 18-22 Narrative & Sol

$0 The spreadsheet will compute this for you.

CPC

$0 The spreadsheet will compute this for you.

$0 The spreadsheet will compute this for you.

BRIEF Problem 18-22

QUESTION:

18-22 Phelps Glass Inc. has reported the following financial data: net revenues of $1 0 million, variable costs of $5 million, controllable fixed costs of $2 million, noncontrollable fixed costs of $1 million, and untraceable costs of $500,000. The accounting manager has supplied you with this data and asked you to come up with the controllable margin, total contribution, CPC, and operating income.

For guidance, review Exhibit 18. on page 815 in the text.

Hint: Enter values in this color cell.

SOLUTION:

Hint: Excel will compute this for you.

Net Revenue

Variable Costs

Contribution Margin

$0

The spreadsheet will compute this for you.

Controllable Fixed Costs

Controllable Margin

Noncontrollable Fixed Cost

Total

Untraceable Costs

Operating Income

^Try again^

^^^^^^^^

this field will let you know if the final total

for “Operating Income” is correct.

It will change to “Correct” when it is right.

Problem 20-38 Narrative

QUESTION:

rooms. His job objectives include providing resourceful and friendly

100

because of the addition of the bonus. The goal measures used to compensate Ramon are as follows:

	20-38 Incentive Pay in the Hotel Industry
Incentive Pay in The Hotel Industry
Ramon Martinez is the general manager of Classic Inn, a local mid-priced hotel with	100
service to the hotel’s guests, maintaining an 80 percent occupancy rate, improving the average rate received per room to $88 from the current $85, and achieving a savings of 5 percent on all hotel costs. The hotel’s owner, a partnership of seven people who own several hotels in the region, want to structure Ramon’s future compensation to objectively reward him for achieving these goals. In the past, he has been paid an annual salary of $72,000 with no incentive pay. The incentive plan the partners developed has each of the goals weighted as follows:
Measure	% of Total
Occupancy rate (also reflects guest service quality)	40
Operating within 95 percent of expense budget	25
Average room rate Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper		35
Check total
If Ramon achieves all of these goals, the partners determined that his performance should merit a bonus of $23,000. The partners also agreed that his salary would be reduced to			$60,000
Occupancy goal: 29,200 room-nights = 80 percent occupancy rate x100 rooms x 365 days
Compensation: 40 percent weight x $23,000 target reward = $9,200
$9,200/29,200 = $0.31 5 per room-night
Expense goal: 5 percent savings
Compensation: 25 percent weight x $23,000 target reward = $5,750
$5,750/5 = $1 ,150 for each percentage point saved
Room rate goal: $3 rate increase
Compensation: 35 percent weight x $23,000 target reward = $8,050
$8,050/300 = $26.83 per each cent increase
Ramon’s new compensation plan will thus pay him a $60,000 salary plus 31 .5 cents per room-night sold plus $1,1 50 for each percentage point saved in the expense budget plus $26.83 per each cent increase in average room rate.
Required
1 . Based on this plan, what will Ramon’s total compensation be if his performance results are
a. 30,000 room-nights, 5 percent saved, $3.00 rate increase?
b. 25,000 room-nights, 3 percent saved, $1 .1 5 rate increase?
	c. 28,000 room-nights, 0 saved, $1 .00 rate increase?
	2. Comment on the expected effectiveness of this plan.

Problem 20-38 Solution

20-38 Incentive Pay in the Hotel Industry

Total

$60,000

$0.00 $0.00

^Try again^

$60,000 $0.00 $0.00 $0.00 $60,000.00

c. 28,000 room-nights, 0 saved, $1 .00 rate increase? $60,000 $0.00 $0.00 $0.00 $60,000.00

(Rate * Units) (Rate * Units)

2. Comment on the expected effectiveness of this plan.

Review textbook pages 898 through 902 for guidance. Also, see comments at right for additional guidance —->

Additional Guidance:

The problem is based on the material in the textbook found in Chapter 20, pages 894 to 902.

There is no direct example to fit this exact problem narrative. Rather, you are to synthesize the material and compile the information using the material presented.

Part 1 Solution:

To help get you started, let’s look at Part a. We are given a total base salary of $60,000. So, we know that is going to be included in the “total compensation”.

Category–>

Base Pay

Occupancy Goal

Expense Goal

Room Rate Goal

Total Pay

Only 1 of 3 have

Then, we are given 3 independent bonus variables to calculate possible bonus:

(Given)

$ Rate

Units

feedback:

a. 30,000 room-nights, 5 percent saved, $3.00 rate increase?

$0.00

$60,000.00

b. 25,000 room-nights, 3 percent saved, $1.1 5 rate increase?

1- 31 .5 cents per room-night sold

2- plus $1,1 50 for each percentage point saved in the expense budget

(Rate * Units)

Sum of all $ in row

3- plus $26.83 per each cent increase in average room rate.

Note: Enter data in these colored fields.

Note: Excel will compute.

You will compute the Bonus using those 3 elements for each part (a, b & c).

For Part a, you are told that:

a. 30,000 room-nights, 5 percent saved, $3.00 rate increase.

[Enter comments here]

So, you will add the $60,000 to the amount of bonus earned for all 3 categories of bonus, based on those results for a, b & c. Therefore, for Part a, the “room-night bonus”, the “percentage point” bonus & the “each cent increase” bonuses will all be added to the $60,000.

Specifically, for Part a, the solution would be =:

$60,000 + (31.5 cents bonus for every room-night sold). + ($1,150 for each % point saved) + ($26.83 for every CENT increase).

Repeat that process for parts b & c.